Excess Capacity

Drawn into the stream of undefined illusion
Those diamond dreams, they can't disguise the truth
--Level 42

Finally got around to downloading older capacity utilization data from the Fed's website. The below graph shows US capacity utilization for the manufacturing sector since 1948, which is as far back as the series goes). Capacity utilization = actual output/potential output.

It is evident that capacity utilization has been trending lower for decades. From 1948 thru the early 1970s, capacity utilization averaged in the mid 80s and periodically pierced 90%. This should not be surprising considering that that this period followed a major world war that found US factory standing.

Beginning in the late 70s/early 80s, CU commenced decline. The early 80s, of course, corresponds to the beginning of the secular decline in interest rates.

Low CU means that you have more supply than you need. Increasingly, we appear to be swimming in excess supply.

Inquiring minds should be asking questions. Why have we been adding more aggregate supply than is necessary to support demand? What has been driving this trend?